Payroll Obligations of employers and employees

Cyprus is known not just as a popular place for tourism, the island is also famous with foreign investors and international entities looking for a suitable base from where to conduct business with partners in Europe and the Middle East. 

Due to its beneficial business and investment environment, the Republic has acquired an international reputation as a tax haven for foreign companies. 

Still, foreign employers aiming to find local employees or to incorporate a local legal entity should know the country’s compliance requirements, in particular, the rules and regulations of payroll sphere. 

Initially, employers who will be engaged in payroll for their employees in Cyprus need to be registered with the Tax Department and Social Insurance Services.   

After the completion of registration process, authorities issue a Tax Identification Code and a Social Insurance Number that will be used for payroll processing.   

Newcomers hired should be submitted to both authorities as soon as the employment procedure is settled. Employees residing in Cyprus also need to be registered with Social Security and the national Tax Department to obtain their personal tax and social security codes.   

If employees are not registered in the above-mentioned governmental departments, employers have 7 days to submit the documents necessary to register their employees. 

  The formal obligation to set up a local bank account as payments to employees, tax authorities and social security bodies is absent. So, payments can also be performed via a foreign bank account. 
National social security scheme is applied to every employed person in Cyprus. It is subsidized by employers and employees in equal parts. The State also facilitates the social security costs.  

In 2019, the country set up a new General Healthcare System which is also supported by employment contributions. Apart from the main social security bodies, employers also have to make an 8% payment to a centralized holiday fund - exemptions are possible. 
The Social insurance scheme in Cyprus automatically applies to all employees. There are two major funds where employees and employers make monthly contributions:

  • Social Insurance Fund
  • General Health System (GHS)

The contribution to the Social Insurance Fund is up today established at 16.6% and is divided between employee and employer in equal parts. Contributions to the General Health System amount to 2.65% for employees and to 2.9% for employers.

In addition to these two main social security bodies, employers also have to make monthly payments to three other funds maintaining industrial training, redundancy and social cohesion.

Employers are responsible for holding back of their employees’ share as well as for performing their own contributions. The Social Security payment’s deadline is the end of the month following the pay period. Fines for late payments range between 3% and 27%. Since January 2021, the issuance of social security payments via the official online portal SISnet was set up as mandatory. 

In case the employers decide to suggest their employees more paid leave than the statutory requirement and consider providing holiday pay to their employees directly, still companies are also obliged to contribute to a Central Holiday Fund, which is used to cover the employee’s statutory annual leave entitlement. Contributions amount to 8% of the employee’s annual earnings.

In accordance with the designed scheme, the contribution rate to the Social Insurance Fund for both employees and employers is due to raise every five years as follows: 
  • January 2024: 8.8% for both employee and employer
  • January 2029: 9.3% for both employee and employer
  • January 2034: 9.8% for both employee and employer
  • January 2039: 10.3% for both employee and employer
Employees in Cyprus obtain variety of benefits: 
  • Annual leave and public holidays: 20 days of paid annual leave per year for employees with a 5-day working week (24 days for employees with a 6-day working week); plus between 14 and 17 public holidays.
  • Maternity leave: 18 weeks for the first, 22 weeks for the second and 26 weeks for the third (and any subsequent) child.
  • Paternity leave: 14 days of paternity leave which must be taken within the first 16 weeks after birth.
  • Parental leave: 18 weeks of unpaid leave can be taken by either one of the parents.
  • Sick leave: no obligation for employers to provide sick pay as sickness benefits are paid by social security commencing from the 4th day of sick leave. 
The law in Cyprus does not envisage a specific payroll frequency. Employers are free to choose a payroll scheme, which is most appropriate for the company. Usually, employees are paid on a weekly or monthly basis. In most companies, employees obtain the payment at the end of each month. It can be performed via bank transfer or in cash. It is advisable to convert payments to euros to calculate the necessary tax and social security deductions.  

Pay slips should be provided to the employee for each pay period. They can either be digital or in hard copy form. Employers need to keep proper payroll records. The timeframe for record keeping in payroll is absent in the law, still the general standard for accounting books and records is 6 years. 

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